I loved this public service announcement from the Japanese Ministry for Agriculture, Forestry and Fisheries – easily the most succinct and accessible summary I’ve seen of why food prices have risen. Also interesting to see how strongly the Japanese government is leading on messages of greater national self-sufficiency as the way forward.
[youtube:http://www.youtube.com/watch?v=ok3ykR2GHCc]
Next week sees the publication of the International Energy Agency’s latest flagship World Energy Outlook, which has been heavily leaked to the Financial Times. The report makes the same point that I’ve been arguing since prices started to slide from their peak of $147 over the summer (to around $60 today): oil prices are going to go back up. A lot. As Javier Blas and Carola Hoyos summarise in the FT,
The world economy will witness a $2,000bn shift in wealth and power from oil-consuming countries to members of the Organisation of the Petroleum Exporting Countries as oil prices rise to $200 a barrel by 2030.
The IEA says that Opec oil reserves are big and cheap enough to increase production and cap oil prices, but it warns: “Investment by these countries is assumed to be constrained by several factors, including conservative depletion policies and geopolitics. “There remains a real risk that underinvestment [bet-ween now and 2015] will cause an oil supply crunch” the report states…
In its report, the IEA sees oil prices reaching $200 by 2030, almost doubling last year’s forecast of $108 by the same year. The report suggests that current oil prices – below $70 a barrel and less than half their peak summer level – are a temporary effect of the economic crisis.
The $200 a barrel figure is the same one mooted by a Chatham House report on oil published in August, which shared the IEA’s concern that the investment needed to bring new production on stream just wasn’t happening fast enough. The IEA was already worried about that point when it published last year’s Outlook, remember – the fact that prices have crashes to less than half their peak level since then will hardly have helped to bring new investment on stream.
Exactly as with food prices, then, it’s the recent fall in prices that represents the blip – and the recent highs that represent the start of a long term trend. The IEA’s report is just the latest in a series of very good reasons why policymakers need to get their act together quickly on agreeing collective approaches to resource scarcity issues while the political heat on them is – for a little while – off.
But to repeat what I said in July, massive investment in new oil production just can’t be squared with what needs to happen on climate change. The global deal that we really need for managing energy security and competition for oil resources is a global framework for climate policy that manages the problem over the full term of its lifecycle – not just the next few years, as with Kyoto, as this is far too short term to give real investment certainty – and that has targets for all countries, not just developed ones.
That, of course, takes us straight back to David’s recent question on developing country participation. More on that in another post shortly…
Take note of the important signal of problems in store on the front of today’s FT. Reckitt Benckiser, the consumer goods manufacturer, has broken ranks to express its outrage that Tesco (the UK supermarket group) is extending the time it takes to settle invoices from 30 to 60 days. Reckitt’s CEO says:
The question is [if] in the long term they drive the smaller suppliers out of business, that is the key question and it might happen … I don’t think it is reasonable – no, it is not. There is absolutely no logic to that. They turn over the inventory [in] much less [time] than 60 days, so why should they have 60 day payment terms?
For a supplier to go public with a criticism like this is very unusual, as the FT notes. Yet Reckitt’s certainly not the only company that’s worried – I’ve heard other food groups express private fears that a serious crunch will build up in the food supply chain over the next two months.
Senior policymakers in the UK, the US and elsewhere are already underscoring their concerns about small businesses in the credit crunch, and making noises about pressuring the financial sector to do more for them.
On the same basis, they need to focus hard on the supermarket sector – which through its sheer market power risks causing serious damage to supply chains we all depend on. There are important questions here of shared responsibility for shared resilience in conditions of severe stress. Governments should not be shy of reminding supermarkets of that fact.
There’s an interesting interview with Chinese premier Wen Jiabao by Fareed Jakaria on the CNN website. Wen again talks about his love of Marcus Aurelius’ Meditations, and how it plays a role in his political philosophy.
This philosophy, as far as I can tell, is one of Stoic resilience in the face of catastrophe, such as the earthquake that hit China in May, when Wen immediately flew out and took command of the recovery situation.
He spoke at greater length in New York in September:
I had a background in geological studies and I am familiar with an important theory in the study of the history of geological periods: that is the catastrophic theory. In the past six years since I took office as the Chinese Premier, it is fair to say that we have encountered numerous disasters and difficulties.
From the outbreak of the SARS epidemic, to the sleet- and snow-storm that hit southern China, and then to the massive earthquake that devastated Wenchuan, Sichuan province, and from the accidents in the coal mines to the food safety incident that occurred recently, all this has given us a very informative experience, and we have learned new things from overcoming these difficulties. As I always say: what a nation loses in a disaster will always be compensated by progress later on.
As you may know, I very much enjoy reading Meditations, a classical work written by Marcus Aurelius. In this classical work I once read: as for so-called great men, where are they now? They are all gone. Some of them may be enough to form a story and some others may not even be enough to form half a story. So I would rather prefer leaving some spiritual legacy behind, mainly as the following two points:
Number one, in the wake of a disaster, we should not yield to the difficulties, rather we should have the courage to face up to the difficulties head-on and we should have the courage to lead our people to surmount the difficulties. To do that, we need to have a firm stand; we need to have courage and confidence.
Number two, as far as a government is concerned, a government should be responsible for its people, should be dedicated to serving the people, and should be marked by dedication and its clean and honest behavior. Except for these, a government should not have any privilege whatsoever. All the power belongs to the people and all the power should be used for the people.
As an old Chinese saying goes: a spring silkworm keeps producing silk until it dies and a candle keeps giving light until it burns into ashes. I am already sixty-seven years old, and I will dedicate the rest of my power and energy entirely to the Chinese nation and to the Chinese people and I hope that when I leave this world people will remember that I, as the Premier, have actually followed the two principles that I mentioned before, and that way I will also rest in peace.”
Grandpa Wen’s love of Marcus Aurelius has done wonders for the old Stoic’s reputation in China. The Meditations has been in the top ten bestseller list there for several months.
We are now officially beginning some sort of post-credit crunch global governance feeding frenzy. We now have the following to look forward to:
– The report of a new High Level Commission on modernisation of the World Bank, chaired by former President of Mexico Ernesto Zedillo;
– A UN General Assembly task force on the global financial system, chaired by Joseph Stiglitz (composition and terms of reference to be announced on 30 October);
– An EU summit on the financial crisis and reform of global financial institutions on 7 November, to prepare for…
– A G20 summit on international financial institution reform in Washington DC on 15 November (though no-one seems to have told the G20 secretariat);
– A UN Financing for Development summit from 29 November to 2 December – it’s been in preparation since last year, but Ban Ki-moon has now suggested turning it into a UN summit on the financial crisis, in NYC rather than Doha as planned (Ban says:
“I strongly believe that holding the summit at the United Nations, the symbol of multilateralism, will lend universal legitimacy to this endeavour and demonstrate a collective will to face this serious global challenge…”)
I make no claim to this being a comprehensive list (and will add to it as I find more baubles to hang on the tree). But it all invites the question: how much is really going to be achieved through all this pannelling and summitry? As Eurodad, the civil society network on debt relief, notes on its website:
Several meetings that Eurodad staff have had in recent days reveal that senior European policy makers have few precise reform proposals for this summit meeting and have not started negotiating a common EU position. Indeed smaller European countries are unhappy that they will be excluded from the 15 November meeting. The summit – with its extravagant “Bretton Woods II” billing – may reveal a very dangerous gap between expectations and delivery,
Too right. Over the summer, there were no fewer than three summits (FAO; G8: WTO) that claimed in advance that they were riding to the rescue on food prices, and which then failed to deliver anything interesting. Now it looks like we’re about to do the same on the credit crunch…
Update: Eurodad have produced a helpful FAQ on the ‘Bretton Woods II’ summit – download it here. Thanks to Alex Wilks.
Update 2: David and I have published a briefing paper on the Summit.